(Ottawa) The recent increase in the number of newcomers is contributing to inflation through the demand for housing, a senior Bank of Canada official said Thursday, warning that rents and home prices could continue to rise. increase if the supply of housing is not increased.
In a speech in Windsor, Ontario, Deputy Governor Toni Gravelle recognized the many benefits of this increase in immigration, noting its contribution to economic growth, an increased workforce and in the fight against the aging of the population.
But he warned that it also adds pressure to a housing market riddled with structural challenges, including zoning restrictions and a shortage of construction workers.
BANK OF CANADA
Deputy Governor of the Bank of Canada, Toni Gravelle
“This demographic jump in demand, combined with structural supply issues, could explain why rent growth continues to increase in Canada. This also helps explain, in part, why housing prices have not fallen as much as we had expected,” Gravelle told the Windsor-Essex Regional Chamber of Commerce.
The Bank of Canada recently noted that while interest rates have risen, other housing costs that would normally fall — such as house prices — have not fallen much. According to the institution, the fact that the supply of housing does not meet demand is the cause.
Since coming to power, the federal Liberals have pursued a more ambitious immigration policy, asserting that Canada must welcome more people to develop the economy and deal with an aging population. That approach has come under greater scrutiny in the past two years as Canada experiences record population growth that economists say is worsening housing affordability.
The deputy governor said that shortly after the surge in immigration began in 2015, Canada’s vacancy rate — which measures the number of homes available to rent or buy — began to decline .
“Then, when the number of new arrivals increased sharply in early 2022, the steady decline in the vacancy rate became dizzying,” said Mr. Gravelle.
Different south of the border
The combination of stronger population growth and these structural issues has contributed to the gap between the housing markets in the United States and Canada, according to the deputy governor.
“This is because the housing supply in Canada has not kept pace with recent increases in immigration. We are in a different situation from that of the United States, where housing construction has been able to adapt more flexibly to demographic variations, and where rent growth should continue to decline,” he underlined.
The deputy governor warned all levels of government that they must work together to reduce barriers to building new housing, otherwise rents and home prices could continue to rise.
The federal government has defended its immigration policy by saying newcomers are part of the solution to building more housing.
But in his speech, Mr. Gravelle presented statistics that show Canada’s immigration policy has failed to attract more construction workers.
“In fact, while Canada welcomes more newcomers than ever, only about 3% of non-permanent residents work in the construction sector. For comparison, approximately 8% of all workers are employed in this sector,” he highlighted.
Mr. Gravelle said the federal Skilled Trades Program, an immigration pathway that includes skilled construction workers, has also failed to attract many people from that field.
“At the same time, some 20% of all workers in the Canadian construction sector are expected to retire over the next ten years,” he said.
Gravelle’s speech comes a day after the Bank of Canada kept its key interest rate at 5% on Wednesday, but warned it was prepared to raise rates if necessary in its fight against inflation.